The central government is considering an overhaul of laws that ban private fund-raising by businesses and individuals and may use the eastern city of Wenzhou as a testing ground for reforms, Premier Wen Jiabao said during a news briefing after the close of the annual session of the National People's Congress, says an article on scmp.com. Excerpts:

The comments came in response to a question posed about private fund-raising. Academics and entrepreneurs say it has shed light on the lack of adequate channels for cash-strapped small and medium-sized enterprises to obtain credit through formal lending sectors.

Details about the pilot program have not been revealed. But possible changes could include legalizing private fund-raising and allowing private money into financial institutions such as micro-loan companies, rural commercial banks and rural credit cooperatives as government officials in Wenzhou, Zhejiang province handed the State Council proposals to reform private lending and fund-raising last year after thousands of businesses became bankrupt.

Other suggestions include enhancing protection for private-lending participants, stepping up monitoring of the use of funds and liberalizing interest rates.

Experts say the liquidity squeeze experienced by smaller businesses last year showed the country lacks an important means of financing that caters specifically to small and medium-sized businesses. Large banks often prefer to lend to State-owned companies because it poses less risk. Therefore, there is a need for "grass-roots financial institutions" as channels to help money trickle down to those really in need.